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Netflix Has High Hopes for India

Netflix, Inc. (Nasdaq: NFLX) stock took quite a hit following its third-quarter guidance miss, but the latest data from India suggests the streaming video leader could be poised for a comeback in the third quarter. SunTrust Robinson Humphrey analyst Matthew Thornton upgraded NFLX stock from “hold” to “buy” on Friday and said Netflix’s original content is gaining popularity among Indian viewers.

According to Thornton, Netflix hasn’t disappointed Wall Street with subscriber numbers in two consecutive quarters since 2012, and SunTrust’s Subscriber Tracker suggests Netflix is off to a strong start to the third quarter. SunTrust’s data indicates Netflix is on track to add 700,000 domestic subscribers in the third quarter and about 5 million international subscribers. Consensus analyst estimates are calling for slightly less than 700,000 domestic subscriber additions and 4.5 million international additions.

One of the reasons for the relatively strong international performance is success in the India market, where Thornton says Netflix’s original programming is resonating with customers. Thornton says Netflix is facing an uphill battle in India, but the company is making all the right moves.

“Household broadband penetration, pricing and payments are going to be significant headwinds to driving material penetration in India,” Thornton says.

One of the difficulties in emerging markets is the large number of mobile users billing via mobile app. Thornton says Netflix is testing ways to transition away from mobile billing, which could help boost operating margin by about 2 percent in the long term by allowing Netflix to avoid the roughly 20 percent is pays in blended commission fees to mobile app stores.

Thornton says Netflix will also continue to seek partners and potential bundling opportunities to help with penetration in India and other international markets. Netflix already has partnerships in place in India with Videocon, Bharti, Vodafone and Tata Sky, and Thornton says he expects more partnership announcements in the near future.

While a potential third-quarter subscriber beat would likely boost NFLX stock in the near term, Thornton says there’s no shortage of longer-term catalysts for Netflix as well.

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